Fault-Line in Mobile Pricing Structure

By Paul Sharma

News that AT&T plans to encourage users to throttle back on their mobile data usage illustrates again the fault line in the industry’s pricing structures. And it looks like technology won’t come to the operators’ rescue – in fact, since a raft of new smartphones comes out next year, the situation could get worse.

The problem is that some users, many on iPhones, are chomping up data like it is going out fashion, with estimates that 3% of AT&T’s mobile customers use 40% of network capacity, resulting in poor service in cities such as San Francisco and New York.

One answer would be to introduce metered pricing, or implement a form of tiered usage packages. This would, in effect, segment the market by data use. But there’s a major problem to this plan, which is mobile voice over the internet.

Voice uses a small amount of data compared to video and many visual applications. But it’s charged at around 20 times as much as it should be, when compared with the cost of it being carried over a data channel.

So a simple re-balancing of tariffs and a move to metered pricing for mobile data would encourage users to switch their high-priced voice traffic to a cheap data channel. Such a tariff would also mean that high-volume traffic such as video would become more expensive.

So the trick will be to implement a tiered-tariff structure such that people are encouraged to use the service, but not so much that they eat you out of house and home.

The all-you-can-eat restaurant business has already adopted a number of strategies which could be drafted in to help.

There’s the one helping of ‘protein’ – I call it meat myself – plan, where you can help yourself to as many potatoes or as much salad as you want. In mobile terms, this could translate into paying upfront for a number of hours of video and getting the rest for free.

Another way is the pizza and salad menu, where all the ingredients are staples. Under this scenario, the mobile operator would allow voice and basic data use for a set fee, but wouldn’t allow high-quality video streaming through the network.

Then there’s the use of small plates, where it gets embarrassing if you come back to the counter too many times. This ploy is already used by operators, who drop a call to customers if they are seen to use too much data and ask them to desist. A tougher variant of this (and admittedly a hard one for mobile operators to implement) is to threaten to charge customers if they leave too much food on their plate.

Meanwhile, the next generation of mobile networks, based on long term evolution (LTE), may not be the hoped-for solution to the problem of capacity. Analysts at HSBC suggest that LTE may only provide 30% uplift in capacity on a like-for-like basis compared with 3G CDMA-based networks.

This suggests that more network capacity will have to be built, or data will be offloaded onto the fixed network using short-range radio such as Wi-Fi and femtocells. So 4G technology won’t provide a ‘get-out-of-jail-free’ card to the mobile operators.

Instead, they will need to segment the market in new ways by mixing voice, data and video in such as way that ‘all you can eat’ packages are defined by the customers’ wallet and not their appetite.

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